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Economists flag indebted underclass problem

Private debt is becoming a problem that some Germans cannot escape. A recent study shows that women and young people under 30 are sliding particularly quickly into the red.

Debt problems are increasing amongst German consumers

About 6.5 million Germans are currently struggling with debt – that's almost 10 percent of the adult population.

This year alone saw 290,000 new debtors join their ranks with average liabilities of 35,000 euros. As a result, the number of private insolvencies in Germany is expected to rise 11 percent this year.

It's the first time since 2007 that the number of people falling into debt has risen, according to a study by Creditreform, a business information service specializing in risk and debt analysis.

"The increase in over-indebtedness is a delayed reaction to the economic crisis," Michael Bretz, Creditreform's head of the economic research, told Deutsche Welle.

One of the most worrying trends is a rise in the number of young people with money problems. The past year saw 54,000 teenagers develop debt problems - an increase of 38 percent on the previous year and the biggest increase among any age group.

Bretz puts this down to excessive consumerism.

"Young people want to consume more than older ones to compensate for their low status," Bretz said.

Young people also don't fully understand their finances. According to a recent study by social research company Forsa, almost one third of 16 year olds didn’t know that it would take longer to pay off a loan of 2000 euro at 50 euro per month as opposed to saving that amount.

Bretz worries that ghettos are developing in Germany

Inherited debt

Bretz believes that people learn financial habits from their parents and warns that a sort of "debt mentality" is being passed on from generation to generation - and that there is a certain part of German society that doesn't seem able to manage its money.

"They see that their parents don't work, how they live with debt status, with their income, and that it is possible," Bretz said. "Their children will inherit this status."

About two million people in Germany are expected to stay in debt for the rest of their lives, he added.

As the German economy picks up, consumers are buying large items on credit again. As a result, Bretz expects the number of people burdened with excessive debt will increase even further.

"We have seen an increase in consumer loans," Bretz said. "I think people are more relaxed than in the crisis and so they spend more money, especially in these days before Christmas."

A greater variety of payment options, such as paying on store cards, credit cards, over the internet and zero percent finance offers, has increased debt levels in Germany.

"Most people who come to me have debts at credit institutions, like overdrafts and loans," Thomas Kroeger, a debt advisor in Engelskirchen told Deutsche Welle. "40 percent owe money to mail order companies and every fifth person has overdue mobile phone bills."

Kroeger worries that more teenagers are getting in the red

Divorce and debt

Women are especially prone to debt problems during separation and divorce because although they often have lower incomes than their partners, they can still be held liable for joint loans or contracts signed when they were together.

Diana, an unemployed 26-year-old mother from western Germany, racked up 3,000 euros ($3,970) of debt to 14 different creditors after she split up with her boyfriend.

When Diana moved into a new flat she bought most of the furniture on credit. At the time she was earning good money as an office clerk and was able to pay back her installments comfortably. But then she became unemployed.

"When you lose your job, your world is destroyed and you ask how can I pay for my rent, telephone, electricity and gas?" she said.

In addition to her furniture, Diana is still paying off her bank overdraft, joint mobile phone contracts, insurance, and mail order purchases.

"It's really dangerous. When you see zero percent offers on TV, it entices you to buy so much. And you buy things that you simply don't need," she told Deutsche Welle.

When Diana was unable to find a new job, she found herself living off so-called "Harz IV" social security payments worth just 323 euros per month.

"At some point I lost track of things and didn't know what I should pay for first," she said. "I was getting nasty letters in the post, telling me if you don't pay, then this and that will happen and the bailiff will come."

Many women develop debt problems following divorce or separation

A casual attitude to debt

Diana went to see a debt advisor – a service that's free of charge in Germany if you're unemployed. He wrote to all of her creditors, who agreed to halve her debt and free her of interest payments. She now pays a total of 10 euros per month, which is shared out between her creditors. It's a small amount, but one she should always be able to afford, even on the lowest level of benefits.

"If I could do it again, I would save up my money, rather than buy things on credit and take out loans,” she said. “I only use a pay-as-you-go mobile phone now," she added.

While Diana's debts are now manageable, her partner is almost 20,000 euros in the red and faces private insolvency proceedings. That means for six years, any income exceeding his basic living expenses will be automatically forfeited to creditors. After that his debts will be wiped – a chance for a fresh start.

The fact that Diana's partner has a low income means he only pays 40 euros per month to his creditors. His six years of repayments will amount to just 2,880 euros - an amount Diana finds astonishingly low given the size of the original debt.

"It's laughable really. It's like an easy 'alternative way' to deal with one's debts. At the end you can say, that was it, my debts are gone now".

Bretz warns that there's a danger of people using private insolvency too casually – an easy solution to freeing oneself of debts after overindulging.

"There are more and more people who see this possibility and use it in a very rational way. They see it as a solution to their debt problems," Bretz said.